‘Robeco’s intellectual property makes it unique’

26-04-2017 | インサイト

Robeco CEO Gilbert Van Hassel on the Japanese, the company and his plans and vision for the future.

“The Japanese are very detail-oriented. You see it everywhere. Origami is just one example. They like to fold it all just right. In Japanese flower arrangement, everything is in proportion and each and every detail alone is a wonder to behold. This is something to keep in mind when dealing with the Japanese. You have to be prepared and report on a very detailed level, in all areas. They want to see five or six digits after the decimal point, whereas we are used to rounding off. So if they request that, you shouldn't be suspicious. You just have to adjust your processes to accommodate it.”

These are the words of Gilbert Van Hassel. He has been CEO of Robeco, the Rotterdam fund house owned by Japanese conglomerate ORIX, for almost six months, after serving as ING Investment Management CEO until late 2013. “Like the Netherlands, Japan has a culture of consensus,” says Van Hassel in a conference hall in the new office overlooking the bustling street Weena and Central Station in Rotterdam. “A difference is that here, matters are discussed and then decisions are made quite quickly. Here, the subject may be revisited in a subsequent meeting, and in another one after that. After the initial decision, the entire exercise can take quite long to complete.”

Patience is an important virtue

“In Japan, it can take quite long for a decision to be made. All possible details are considered. So when you work with the Japanese, patience is an important virtue. But once they decide, the whole company will be convinced of its necessity and be ready to implement it. The implementation then happens much faster than in the Netherlands.”

That the Japanese have a reputation for working too much and extremely hard and that the Dutch like to be home in time for dinner is, according to Van Hassel, not a very relevant cultural difference. “Flexible working hasn't yet caught on there as much as it has here. But it's not about how many hours you spend at the office, but the fruits of your labor. Though they may spend long hours at the office, that doesn't necessarily mean they are more effective.”

Van Hassel joined Robeco a few months after the Japanese majority shareholder ORIX decided to change the company structure. While Transtrend, Boston Partners, Harbor Capital and RobecoSAM were, until recently, subsidiaries of the Rotterdam-based asset manager, Robeco is now one of the operating companies that is on equal footing with the others under a new financial holding. This change was concurrent with the departure of almost all members of Robeco's former management board.

“I know what I'm here to do and it's actually quite simple: to ensure the best possible performance for our clients and to provide an update in Japan three or four times per year. Never before have I been given a mandate with so much freedom. That's a good thing.” Van Hassel worked for JP Morgan in Japan in the 1990s. “It was a terrific time,” he says now, looking back, “but I was also there under very rewarding conditions.” From 1996 to 1999, he was Head of Asset Management and Private Banking in Asia and President of the JP Morgan Trust Bank. “This company had suffered considerable losses for nearly its entire time in existence. It was my job to make it into a healthy company again. I found myself in an environment in which things were not going well. That weighs heavily on people. When the situation gradually begins to improve, people start to regain a sense of honor and pride.”

He says he restored growth by ending efforts to attract new clients. “We decided to focus all of our efforts on expanding the existing mandates. If you do that, everything you build up goes directly into your profits without there being any startup costs.” In addition, the Japanese economy began to pick up and there was tremendous interest in stocks. The Japanese government institutions, for their part, were purchasing a great deal of stocks and bonds. Our performance was solid, so we were in a good position to benefit from this. Within a few years, our company was turning nice profits.”

After discussions

This case definitely appealed to ORIX. But he doesn't say who initiated negotiations, he himself, or ORIX: “That kind of thing always happens after discussions. It was clear they were searching for a new CEO for Robeco.” That's always done with executive search firms. There were several key elements in this process: experience at an asset management company and affinity with and knowledge of the Dutch market. I think they mainly looked at my experience at ING IM. The fact that I enjoyed working in Japan, and did so successfully, probably played a role in their choice.”

When asked about his own considerations, he says that he took some time off after working at ING IM. “There, I had helped build an international asset manager, but we were forced to lower our asset base because of the state aid that had been received. We sold our activities in South America, listed our US activities on the stock market and sold part of our company in Asia.”

“Then it was time for me to take a break to get the other things done on my bucket list. Mostly, I traveled, played golf and read a lot. “But at a certain point, when I was playing golf in the mornings and the afternoons, I realized that I wanted to go back. Then there are many opportunities about which you say: “Might be better to avoid that” and a few about which you say, “might be a good idea”, but the other party says, “Might be better to avoid that”. But when I got a call and started talking about Robeco, right away, I said to my wife: this is it. And several months later, it was settled.”

“I can still remember that my parents’ first investment was with Robeco”

Parents’ first investment

The nice thing about Robeco, is that it has a big name and long history. “I can still remember that my parents’ first investment was with Robeco. I was only a teenager at the time, so I wasn't involved, but I do remember.”

Another thing that really appeals to Van Hassel is that Robeco is, as he puts it, “a pure play”. Robeco is a fund house only, not part of a bank or insurance provider. “The advantage being that you can focus purely on asset management. When you're part of a bank, you are expected to supply distribution channels with new products. When you're part of an insurer, of course it's interesting to be responsible for investing the general account. But on the other hand, you also have third party clients. That can give rise to discussions.” ING IM was both. Van Hassel explains, “That's not the case here and so you can focus completely on external clients and, in particular, providing the best performance and service.”

Generating alpha

That's exactly what he plans to do. “As an active asset manager, my goal is to generate alpha. If we succeed at that, I'm convinced that we will also grow, but that isn't my main goal per se. We should only develop products that have added value for our customers.”

In the past, rumor had it that ORIX wanted to grow into a worldwide asset manager with a total of EUR 600 bln under management. Van Hassel says he hasn't heard this before, but that he could imagine ORIX setting such a goal.

“ORIX is, in fact, a private equity party that has some 1000 companies under it. However, most of them have fairly high volumes, but low margins. So for ORIX, asset management is good diversifier. ORIX aims to achieve a corporate return on assets of 3% and a return on equity of between 10% and 12%. An asset manager's return on assets is unlimited, because the assets belong to the clients. The return on equity is between 20% and 30%. So no one should be surprised that they see asset management as a growth gem”.

At the same time, Van Hassel thinks it's clear that the long-term sustainability of asset managers’ current business model must be carefully considered. “We're still seeing rising demand for passive products, but also smart beta factor products. The costs associated with these products are lower. Other the other hand, regulatory pressure is increasing and the regulations are also becoming more and more complex. And there are also demographic changes to consider. More and more babyboomers are retiring or already have.”

“As a result, the demand for decumulation products, as opposed to accumulation products, is increasing, which is causing our revenues to drop and our costs to rise. And there are also technological changes underway, such as machine learning, robo-advice and blockchain. All of this is creating an environment which is pushing the costs upward, while the pressure is on to lower product fees. That narrows the margins. We’ve recently seen several mergers prompted by the potential for cost-cutting. Take Amundi and Pioneer, Aberdeen and Standard Life and Henderson and Janus, for instance.”

Acquisitions

Historically, ORIX has always grown by acquiring other companies. Van Hassel says takeovers are a very important activity for ORIX. “Mergers and takeovers are not one of Robeco Rotterdam's goals. That's not to say we rule out takeovers completely. We do consider whether we can invest in capabilities that we don't have in-house or that we're not currently very strong in. But we focus just as much on whether we can expand our distribution in certain countries.” Examples of areas in which the company could be strengthened by acquiring a team from other parties are private debt or other illiquid assets such as infrastructure.

The following multi-year plan is currently under preparation. At the end of 2016, Robeco had EUR 137 bln under management, of which 70% were institutional assets and 30% retail. The company is focusing on growing both, says Van Hassel. In terms of retail, rolling out the direct retail channel abroad, for example, is also being considered. So far, that exists only in the Netherlands.

Van Hassel explains, “But we shouldn't forget that since 2009, we've always had a bull market. The question is how long it will continue. A bull market is always followed by a bear market. At a certain point, it will be winter again.”

However, he's not worried about Robeco. “I think our company is fairly unique, in that it's more driven by intellectual property than scale, in the sense that innovation has led to better investment performance. I'm convinced that if you can provide alpha, people will always be interested in your products.”

According to Van Hassel, Robeco's core fields of expertise are quant strategies, as well as credits, emerging markets, the benchmark agnostic fundamental equity strategies, and last but not least, sustainability. Quant includes anything based on smart algorithms, such as the core quant strategies, as well as the conservative equity strategies and the factor solutions. According to Van Hassel, “We are also considering how a multi-asset factor portfolio could form the foundation for deep retail portfolios on execution-only platforms, for instance. And we are also thinking of licensing other parties to use our factor indices.”

The concentrated equity funds with a high active share, including the Robeco Global Stars Equities Fund and the Robeco Emerging Stars Equities Fund, fall under the benchmark agnostic fundamental equity strategies.

Finally, according to Van Hassel, sustainability remains an “extremely important cornerstone”. “These days, when you meet with clients, you discuss sustainability within the first half hour. Everyone is working on it. Personally, I really believe in sustainability. In 20 years’ time, our industry will not only aim to create wealth, but also well-being.

Text: Barbara Nieuwenhuijsen. This article was first published in Fondsnieuws magazine, a Dutch publication for professional investors.